Hyperliquid, Paradigm Urge Treasury to Revise AML Rule

TLDR

• Paradigm and Hyperliquid Policy Center urged the U.S. Treasury to revise the proposed AML rule for stablecoin issuers.
• The groups argued that secondary market liability would impose obligations issuers cannot control.
• They supported FinCEN’s focus on primary market compliance where issuers know their customers.
• The letter asked regulators to narrow the definition of stablecoin payment-related activity.
• Hyperliquid Foundation funded the advocacy group with about $29 million worth of HYPE tokens.

Paradigm and Hyperliquid Policy Center urged the U.S. Treasury to revise a proposed anti-money laundering rule. The groups said the draft would impose strict liability on stablecoin issuers for transactions they cannot control. They asked regulators to narrow certain provisions before finalizing implementation under the GENIUS Act.

Hyperliquid and Paradigm Outline Concerns Over Secondary Market Liability

Paradigm and Hyperliquid Policy Center submitted a joint letter to the Treasury on Tuesday. The letter addressed a proposal issued in April by FinCEN and OFAC. The agencies seek to implement GENIUS Act provisions under the Bank Secrecy Act.

The proposal would treat stablecoin issuers as financial institutions for compliance purposes. However, the groups said some obligations extend beyond primary market activity. They argued that secondary market rules would create strict liability for actions issuers cannot police.

The letter stated, “We broadly support the proposed rule,” and endorsed FinCEN’s focus on primary market compliance. The groups supported tailoring obligations where issuers know their customers. They urged agencies to clarify or narrow secondary market requirements.

They said issuers only see wallet addresses and transaction amounts in public blockchain environments. Therefore, they argued that agencies should align AML and sanctions requirements with that reality. They warned that smart contract liability would exceed issuer control.

They added that such an outcome would remove U.S.-regulated stablecoins from DeFi platforms. They stated that offshore alternatives could fill any resulting gap.

Groups Propose Specific Revisions Under GENIUS Act Framework

The joint letter recommended narrowing the definition of “payment stablecoin-related activity.” The groups also asked regulators to reconsider OFAC’s treatment of smart contract interactions. They said the current draft extends liability beyond issuer capacity.

The GENIUS Act passed last year with support from President Donald Trump’s administration. Lawmakers advanced the legislation to provide clearer rules for digital assets. Regulators now work through the rulemaking phase before full implementation.

Hyperliquid Foundation established the Hyperliquid Policy Center in February. The foundation funded the group with roughly $29 million worth of HYPE tokens. Jake Chervinsky serves as the center’s chief executive officer.

Paradigm backed Hyperliquid and supported the center’s advocacy efforts. The venture firm co-signed the letter addressed to Treasury officials. The document forms part of the public comment process.

FinCEN and OFAC will review submitted comments before issuing a final rule. The agencies proposed the draft in April under existing statutory authority. The implementation phase continues as regulators evaluate industry feedback.

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